Johnson Controls to explore options for power solutions unit

(Reuters) – Johnson Controls International Plc (JCI.N) said on Monday it would explore options for its power solutions business that makes advanced batteries for vehicles, and focus on its main business.

FILE PHOTO – The logo of the U.S. Johnson Controls company is seen in Nersac, southwestern France, January 31, 2008. REUTERS/Regis Duvignau

The company’s shares rose as much as 2.2 percent to $39.39 in early trading.

The power solutions business, which produces and distributes about 154 million lead-acid batteries for passenger cars and light trucks annually, carries higher margins but has been capital intensive for Johnson Controls, analysts said.

“It is dilutive to corporate level free cash flow conversion rate. It has an unclear core fit with the rest of (Johnson Controls).”

Johnson Controls said it expects to complete its assessment of strategic alternatives for the power solutions business over the next several months.

Kaye said private equity players could be interested in purchasing the unit, which has a leading market position and a diversified customer base.

The power solutions business accounted for 24 percent of the company’s total revenue of $30.17 billion in 2017.

Building technologies and solutions, the Cork, Ireland-based company’s biggest business, had $22.80 billion in sales in the year. The unit makes building heating and ventilation, air conditioning systems, building access control and fire detection systems.

Johnson Controls, which moved its headquarters to Ireland after acquiring peer Tyco International Plc in 2016, is benefiting from growth in nonresidential construction in China and North America.

“Signs of fundamental sales reacceleration across Johnson Controls’ business portfolio have now begun to emerge, but the company’s recent first-quarter conversion of incremental sales to drive earnings and FCF has continued to be challenged,” William Blair & Co analyst Nicholas Heymann wrote in a note.

Centerview Partners is the financial adviser to Johnson Controls on the unit assessment.